Cyprus: Private M&A Comparative Guide

1 Deal structure

1.1 How are private M&A transactions typically structured in your jurisdiction?

The most common way to structure an Μ&Α transaction in Cyprus is through a share sale. The Cyprus company, which is usually a holding company, is sold/acquired together with the assets/corporate structure it holds.

Asset sale transactions where the buyer selects the assets and liabilities it wants to acquire from the seller are also common.

The acquisition of a Cyprus company via a merger of a Cyprus target with another company – usually by absorption of the target by an acquiring company in the buyer's group which can generally be a Cyprus or EU company – is also common.

The purchase price is frequently paid in cash on completion. Structuring the transaction in two stages – first signing and later closing together with payment – is also common. Deferred consideration provisions and price adjustment mechanisms are seen in several transactions.

The factors which are relevant in assessing how best to structure the transaction include:

• the nature and location of the assets;
• tax considerations;
• existing commitments and relationships;
• the nature of the business;
• any existing licences of the target;
• regulatory requirements; and
• the integration plan of the buyer post-closing.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

Share sale: In a share sale, the buyer becomes the owner of the target, which in turn owns assets and has its own obligations and liabilities. The buyer must conduct due diligence on the target to verify its legal and financial position to safeguard against risks that may exist or arise in future, such as tax liabilities or third-party claims that may decrease the value of the target.

If the target is not newly incorporated or if it is an operational company (not simply a holding company), due diligence can be time consuming and costly. Due diligence normally covers corporate, legal, tax and financial areas.

The transfer of title to the shares is straightforward and can be completed ‘around the table'. Title passes when the buyer is entered as holder of the shares in the target's register of members kept by the company secretary.

Asset sale: In an asset sale, the buyer acquires only those assets specified in the asset purchase agreement. The buyer can therefore choose which assets it wants to acquire and acquire only those liabilities it expressly agrees to take on. In an asset sale, the buyer will typically examine the selling company's right to sell and title to the assets. The buyer will generally not be concerned about the selling company's other liabilities or obligations.

Title in assets does not transfer automatically by entering into an asset purchase agreement. Each asset being acquired must be specifically identified and transferred separately by way of assignment, novation, transfer, delivery or registration, in accordance with the requirements and formalities of the applicable law of the country in which the assets are located. If assets are in different jurisdictions, time, cost and complexity usually increase, as local counsel must be involved and local law requirements must be met.

Merger: A merger requires the approval of the court. The terms of the merger are provided in a merger plan that is adopted by the participating companies to set out the details of the reorganisation. With the order of the court sanctioning the merger, the absorbed company is dissolved without being put into liquidation and its assets pass to the absorbing company. The court order becomes effective when it is filed with the registrar of companies.

1.3 What factors commonly influence the choice of transaction structure?

The choice of transaction structure depends on various factors, including legal, financial and strategic considerations. These can include the following:

• Liability: In a share sale, the buyer purchases the target with all liabilities and obligations, including any potential hidden or contingent liabilities. In an asset sale, the buyer can selectively choose which assets and liabilities it wants to acquire, minimising the risk associated with unknown or undesirable liabilities.
• Tax implications: Tax considerations play a significant role in the choice of transaction structure. The tax treatment of a share sale and an asset sale can vary depending on:
• • the target's business;
  • underlying assets; and
  • other circumstances.
• Employees: In an asset sale, the buyer may have more flexibility in selecting which employee contracts, benefits and obligations it wants to assume.
• Regulatory approvals: Some industries may require regulatory approvals or clearances for certain transactions. For example, a share sale may require consent from existing shareholders or regulatory authorities. That might not be the case in an asset sale.
• Intellectual property and licences: Depending on the nature of the business, the transfer and assignment of IP rights and licences may be easier in an asset sale compared to a share sale. In other instances, it may not be possible for specific intellectual property to be transferred separately from others and the acquisition of the target may be preferable.
• Client relationships and goodwill: If the value of the transaction is tied to the existing client relationships or goodwill of the business, a share sale may be preferred as it can allow for a smooth transition, since the company and its relationships remain intact. Further, an asset sale may require customer consents or notifications, which could potentially impact on business continuity.
• Costs and complexities: The transaction costs – including legal fees, due diligence expenses and administrative efforts – can differ between a share sale and an asset sale. Buyers and sellers may evaluate these costs and complexities associated with each structure to determine the most efficient and cost-effective option.

1.4 What specific considerations should be borne in mind where the sale is structured as an auction process?

Sales of companies by auction are not common in Cyprus. Such sales may be made where:

• shares in companies have been pledged/charged as security which is to be enforced; or
• a receiver has been appointed pursuant to a debenture and sells the company as a going concern.

The Companies Law does not prescribe a procedure for sales of companies by auction. Sales by auction may be used where:

• there are multiple shareholders that reach a deadlock or wish to sell a company by auction for other reasons; or
• a parent company enters into liquidation and owns shares in subsidiaries (the liquidator normally advertises the seller company's intention to sell by auction or through a tender procedure).

Shareholder agreements, joint venture agreements and security documents may also include provisions on sale by auction.

Provisions regulating auction or tender procedures generally include:

• an advertisement by the seller of its wish to receive offers; and
• a requirement for the seller to provide information about the assets to be sold.

The advertisement will set a deadline by which offers can be submitted.

2 Initial steps

2.1 What agreements are typically entered into during the initial preparatory stage of a private M&A transaction?

Letters of intent: Letters of intent or heads of terms serve as evidence of the parties' intention to enter into a transaction and set out the basic terms under which a transaction is to be made. They are generally subject to contract and are therefore not enforceable if the transaction is not implemented.

Exclusivity agreements: Exclusivity agreements are usually options under which the seller gives a potential buyer the right to purchase certain assets within a period, under certain terms. During the exclusivity period, the seller undertakes not to offer or sell the asset to other buyers. Exclusivity agreements are attractive to a buyer concerned about incurring costs – mainly through due diligence – where there is a risk that the transaction might fall through due to interest from competing bidders.

Non-disclosure agreements: Non-disclosure agreements include undertakings by the parties not to use or disclose information they receive from each other that relates to the other's business and affairs, except for the purposes of the contemplated transaction.

2.2 Which advisers and stakeholders are typically involved in the initial preparatory stage of a private M&A transaction?

In the initial preparatory stage of a private M&A transaction, several advisers and stakeholders play a role. This may vary depending on the complexity and size of the transaction, as well as the parties' preferences. Some of the key players commonly involved include the following:

• Corporate executives: The executives of the buyer and seller companies, including the chief executive officer, the chief financial officer and other relevant senior management personnel:
• • provide strategic guidance;
  • assess the potential benefits and risks; and
  • make key decisions related to the deal.
• In-house counsel: The internal legal team of both the buyer and seller companies:
• • provide legal advice;
  • conduct checks; and
  • coordinate with external legal advisers.
• External legal counsel: External legal counsel provide legal expertise throughout the deal process. They:
• • assist with due diligence;
  • negotiate and draft transaction documents;
  • ensure compliance with applicable laws and regulations; and
  • provide general legal advice.
• Accountants and financial consultants: Accounting firms and financial consultants are often involved to provide financial due diligence services.
• Tax advisers: Tax advisers are engaged to provide guidance on the tax implications of the transaction.
• Valuation experts: These may be brought in to assess the value of the target or its assets.
• Industry experts: Depending on the nature of the business and the industry in which the parties operate, regulatory and industry experts may be involved. They:
• • provide guidance on compliance with sector-specific regulations; and
  • advise on industry-specific considerations.
• Board of directors and shareholders: They approve the transaction and ensure alignment with the company's overall strategy.

2.3 Can the seller pay adviser costs or is this limited by rules against financial assistance or similar?

Section 53 of the Companies Law prohibits the provision of financial assistance by a company for the purpose of or in connection with a purchase or subscription by any person of or for any shares in the company or in its holding company.

The prohibition does not apply if:

• the provision of financial assistance is permitted by the company's articles of association;
• the company is a private company and not a subsidiary of a public company; and
• the relevant actions have been approved, at any time, by shareholders of the company with a majority of at least 90% of all votes of all issued shares.

Payment by the seller of the buyer's or the target's costs will not generally fall within the above prohibition, as in an M&A transaction where a target's shares will be acquired, the prohibition will capture assistance provided by the target itself and not the seller. Where there are concerns, the possible provision of financial assistance may be whitewashed by a shareholders' resolution.

3 Due diligence

3.1 What due diligence is typically conducted in private M&A transactions in your jurisdiction and how is it typically conducted?

The due diligence process is commonly conducted after at least a preliminary agreement or heads of terms have been signed between the parties. It is usually performed by the buyer's legal, financial and tax advisers.

Information request lists are provided by the buyer's side to set out:

• the information required for the purpose of the due diligence; and
• the form and timeframe within which it should be provided.

If the volume of information is substantial, a digital data room is usually created for the seller to upload information in it.

Matters covered by the due diligence relate to the type of activities carried out by the company and the assets being sold.

In a share sale, matters typically covered by the due diligence include the following:

• ownership and free title over the shares;
• share capital and corporate structure;
• encumbrances over the company's property;
• compliance with statutory, financial and tax requirements;
• accounts;
• financial arrangements;
• key contracts;
• tax;
• intellectual property;
• employment and pensions;
• real estate;
• insurance;
• licences, if applicable;
• other matters specific to the company's business; and
• litigation and disputes.

In an asset sale, due diligence typically covers the following:

• the company's good and free title over the specific assets;
• the company's capacity and right to sell;
• charges over the company's assets and undertakings;
• terms in existing agreements that may relate to/restrict the sale of the assets;
• corporate governance procedures for the approval of the transaction;
• other specific matters relating to the assets (eg, licences and registrations);
• litigation and disputes relating to the assets or the company's undertaking; and
• the company's solvency.

3.2 What key concerns and considerations should participants in private M&A transactions bear in mind in relation to due diligence?

Due diligence is a critical process that allows buyers to assess the target's assets, liabilities, operations and risks before completing the transaction. Key concerns and considerations can include the following:

• Comprehensive due diligence: Participants should ensure that the relevant aspects of the target are thoroughly examined, including financial, legal, operational, commercial and regulatory matters. This helps to identify potential risks, liabilities and opportunities associated with the transaction.
• Deal breakers: During due diligence, participants should focus on identifying any deal breakers or red flags that may significantly impact the transaction. These could include:
• • undisclosed liabilities;
  • legal disputes;
  • regulatory non-compliance;
  • IP issues; or
  • financial misstatements.
• Compliance and ethical considerations: Participants should consider the target's compliance policies and ethical standards. Assessing the target's adherence to anti-bribery, anti-corruption, data protection and environmental regulations is important to identify any potential legal or reputational risks.
• Integration: Successfully integrating the target with the buyer's existing operations is important. Integration risks may include:
• • cultural differences;
  • incompatible systems or processes; and
  • challenges in retaining key personnel, achieving synergies and managing the post-merger integration process effectively.
• Reputation: M&A transactions can have reputational implications for the buyer. Buyers should assess any potential reputational risks associated with the target, such as:
• • prior legal or ethical controversies;
  • negative public perceptions; and
  • brand compatibility issues.
• Professional adviser support: Engaging experienced professional advisers – including legal, financial, tax and industry-specific experts – is essential.
• Documentation and record keeping: Participants should ensure proper documentation and record keeping throughout the due diligence process. Reports, summaries and organised files can facilitate information sharing, collaboration and the ability to reference findings during negotiations.

3.3 What kind of scope in relation to environmental, social and governance matters is typical in private M&A transactions?

Environmental, social and governance (ESG) considerations have gained increased attention in private M&A transactions. ESG refers to the non-financial factors that can impact on a company's long-term sustainability and its relationships with various stakeholders. The scope of ESG matters in private M&A transactions can vary. Typical areas that may be addressed usually include the following:

• Environmental considerations:
• • compliance with environmental laws and regulations;
  • environmental permits, licences and approvals;
  • environmental liabilities, contamination or remediation obligations;
  • climate change risks and carbon emissions; and
  • energy efficiency and sustainable practices.
• Social considerations:
• • employment practices, including employee rights and welfare;
  • diversity and inclusion policies;
  • health and safety policies and practices;
  • community engagement and relations; and
  • human rights and supply chain management.
• Governance considerations:
• • board composition and structure;
  • executive compensation and incentives;
  • anti-corruption and bribery measures;
  • ethical business practices and codes of conduct; and
  • shareholder rights and engagement.

ESG considerations can be addressed via:

• proper due diligence;
• ESG representations and warranties; and
• indemnification provisions in the transaction documents.

4 Corporate and regulatory approvals

4.1 What kinds of corporate and regulatory approvals must be obtained for a private M&A transaction in your jurisdiction?

The articles of association of the target and any shareholders' agreement between the target's shareholders regulate the corporate approvals required and the majorities by which they must be passed.

Provisions in the articles or a shareholders' agreement which might be relevant may include:

• lock-up periods;
• pre-emption rights of existing shareholders;
• drag and tag-along provisions; or
• requirements for approval of the sale by the shareholders and/or the board with certain majorities.

In a share sale, the selling shareholders must consent to the sale and sign transfers of their shares. In an asset sale, the selling company resolves to approve entry into the sale agreement and authorises a person to sign it on the company's behalf.

There is generally no requirement to notify creditors of the sale of shares in the company or of its assets. However, loan, finance, security or other agreements to which the seller is a party may require a counterparty to be notified or require the counterparty's consent before the sale of assets.

In an asset sale, creditors of the company or its liquidator have a right to challenge transactions by the company if they are made at an undervalue, to prefer some of the company's creditors or to defraud creditors. To address the risk of any possible challenges by creditors, buyers should examine the company's solvency and its position against creditors.

If the company being sold performs licensed activities, relevant approvals or notifications must be obtained from or made to the regulator before the transaction is completed. Competition law approvals or notifications may be required in certain circumstances.

4.2 Do any foreign ownership restrictions apply in your jurisdiction?

Generally, there are no restrictions on foreign nationals owning shares in Cyprus companies. Compliance with anti-money laundering and prevention of terrorism laws and regulations must be observed for a person to own shares in a Cyprus company or to conduct business activity in Cyprus. Without limitation, the EU Sanctions Regulations concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine – which impose asset freezes on certain persons and entities and prohibit certain activities and/or transactions with Russian individuals and entities – must be complied with.

4.3 What other key concerns and considerations should participants in private M&A transactions bear in mind in relation to consents and approvals?

Other key concerns and considerations may include the following:

• Timing considerations: Participants should take into consideration the time required to obtain consents and approvals in the overall transaction timeline. Delays in obtaining necessary consents can impact on the closing date and potentially affect financing arrangements or other transaction-related matters.
• Conditions precedent language: Transaction documents should include clear and precise language regarding:
• • deliverables;
  • conditions to be fulfilled;
  • consents; and
  • approval requirements.
• Regulatory and legal considerations: Participants should be aware of any potential legal or regulatory restrictions on obtaining consents or approvals.
• Professional adviser engagement: Engaging legal counsel and other professional advisers with expertise in the relevant jurisdiction and industry is important.

5 Transaction documents

5.1 What documents are typically prepared for a private M&A transaction and who generally drafts them?

The specific documents required for a transaction may vary depending on:

• the transaction's complexity and structure; and
• the preferences of the parties involved.

Common documents prepared for private M&A transactions are as follows:

• Letter of intent (LOI) or term sheet: The initial document outlining the proposed terms and conditions of the transaction. The LOI is typically non-binding but may include certain provisions that are intended to be binding.
• Confidentiality agreement or non-disclosure agreement: This is signed between the buyer and the seller to protect the confidentiality of sensitive information shared during due diligence and negotiations. It sets out the terms and obligations regarding the use and disclosure of confidential information.
• Purchase agreement: The purchase agreement is the main document that outlines the terms and conditions of the transaction, including:
• • the purchase price;
  • payment terms;
  • representations and warranties;
  • covenants;
  • conditions precedent; and
  • post-closing obligations.
• It is typically drafted by legal counsel representing the buyer or the seller, depending on the negotiation dynamics.
• Disclosure letters/schedules: These are prepared by the seller and contain specific disclosures related to the representations and warranties made in the purchase agreement. These schedules identify exceptions, disclosures and other relevant information regarding the target's operations, contracts, liabilities and other matters.
• Ancillary agreements: Depending on the transaction's structure and specific circumstances, additional ancillary agreements may be prepared. These can include:
• • transition service agreements;
  • IP assignment agreements;
  • non-compete agreements;
  • employment or consulting agreements;
  • escrow agreements; and
  • other documents required to address specific aspects of the transaction.
• Due diligence reports: The relevant due diligence reports are prepared to document the findings and analysis from the due diligence process. They may cover financial, legal, tax, operational and other aspects of the target.
• Closing documents: These are executed and exchanged at the closing of the transaction to effectuate the transfer of ownership or assets. They may include:
• • share transfer forms;
  • share certificates;
  • board resolutions;
  • closing certificates; and
  • other deliverables required to finalise the transaction.

5.2 What key matters are covered in these documents?

The key matters covered in the documents prepared for a private M&A transaction vary depending on the specific circumstances of the deal and the wishes of the parties involved. Common key matters that are typically addressed in these documents may include the following:

• Purchase agreement:
• • Purchase price and payment terms: The agreement specifies the purchase price, including any adjustments or earn-out provisions, and outlines the payment terms.
  • Assets or shares: The agreement defines whether the transaction involves the purchase of assets or shares of the target.
  • Representations and warranties: The parties make certain representations and warranties regarding the target's financial condition, operations, assets, liabilities, intellectual property, contracts, compliance with laws and other relevant matters.
  • Covenants: The agreement may include various covenants that the parties must comply with before and after closing, such as non-compete provisions, restrictions on soliciting customers or employees, or requirements for cooperation in transition matters.
  • Conditions precedent: The agreement specifies the conditions that must be satisfied before the transaction can be completed, such as obtaining necessary regulatory approvals, shareholder consents or third-party consents.
  • Indemnification provisions: The agreement outlines the procedures, limitations and timeframes for indemnification, specifying how and when claims for breaches of representations and warranties can be made and addressed.
  • Governing law and dispute resolution: The agreement designates the governing law and specifies the mechanism for resolving disputes, such as arbitration or litigation.
• Disclosure schedules: The seller provides specific exceptions, disclosures or qualifications to the representations and warranties made in the purchase agreement. These exceptions highlight any known issues, risks or liabilities related to the target's operations, contracts, intellectual property, litigation, environmental matters or other relevant areas.
• Ancillary agreements:
• • Transition service agreements: If the buyer requires support from the seller to transition certain services or operations after closing, a transition service agreement may be prepared to govern the terms and duration of such services.
  • IP assignment agreements: These agreements address the transfer of IP rights from the seller to the buyer, ensuring that the buyer obtains the necessary ownership and rights.
  • Non-compete agreements: Parties may enter into non-compete agreements to restrict the seller from competing with the buyer's business for a specified period and within defined geographic areas.
  • Employment or consulting agreements: If key employees or consultants are expected to continue working with the buyer post-transaction, separate employment or consulting agreements may be prepared to outline the terms and conditions of their engagement.
• Due diligence reports: The due diligence reports document the findings, analysis and assessments from the due diligence process. These reports cover various areas, such as:
• • financial information;
  • legal matters;
  • tax issues;
  • intellectual property;
  • contracts;
  • regulatory compliance; and
  • operational considerations.

5.3 On what basis is it decided which law will govern the relevant transaction documents?

Cyprus law is usually chosen to govern a share purchase agreement for the sale and purchase of shares in a Cyprus company. However, a share purchase agreement for the sale and purchase of shares in a Cyprus company can be governed by a foreign law. In such case, the mandatory provisions of Cyprus law apply regardless of whether they conform with the terms of agreement or a chosen foreign law; and accordingly, it is essential that a share purchase agreement for shares in a Cyprus company that is governed by foreign law is reviewed by Cyprus counsel to ensure its conformity with Cyprus law.

Arbitration clauses to resolve disputes by arbitration in Cyprus or abroad are not uncommon in agreements to acquire or invest in Cypriot companies, especially if the parties are non-Cypriot. The Cyprus arbitration legislation is the Arbitration Law (Cap 4) and the International Commercial Arbitration Law (101/1987), based on the United Nations Commission on International Trade Law Model Law of 1985. Cyprus is also a party to the New York Convention, ratified by Law 84/1979. There is no arbitration court in Cyprus, but there are several arbitral institutions that assist on the resolution of disputes by arbitration. Cyprus law permits the parties to agree how arbitrators are appointed and to select the person(s) to act as arbitrators.

6 Representations and warranties

6.1 What representations and warranties are typically included in the transaction documents and what do they typically cover?

Warranties and indemnities are an important part of an acquisition agreement in a share sale and an asset sale. They set out the parties' understanding and confirmations about the property being sold and create actionable rights.

In a share sale, in relation to the seller and the shares being sold, warranties typically cover:

• the share capital structure and ownership of the shares, including encumbrances over them;
• the capacity and right of the seller to sell and perform the agreement;
• loans given by the seller to the target; and
• warranties or indemnities given by the target to the seller.

In relation to the target, warranties in a share sale typically cover:

• due incorporation and good standing;
• financial statements and accounts;
• financial matters relating to the business;
• compliance with filing requirements;
• the governance of the target;
• key contracts;
• licences, if applicable;
• ownership of assets;
• specific representations in relation to underlying assets;
• the target's solvency;
• employees;
• insurance;
• litigation, disputes and investigations;
• change of control provisions and effect of the sale; and
• taxes.

6.2 What are the typical circumstances in which the buyer may seek a specific indemnity in the transaction documentation?

The circumstances in which a buyer may seek a specific indemnity in the transaction documentation may include the following:

• Known or identified liabilities: The buyer may seek indemnity for liabilities or potential risks associated with the target which are known or identified during the due diligence process.
• Breach of representations and warranties: The buyer relies on the representations and warranties made by the seller about the target's financial condition, legal compliance, contracts, intellectual property and other matters. If any of these representations and warranties are breached, the buyer may seek an indemnity to protect against the financial consequences of such breaches.
• Tax liabilities: Tax-related indemnities are common in M&A transactions. The buyer may request indemnification for any tax liabilities, such as unpaid taxes, undisclosed tax assessments or tax audits related to the pre-closing period.
• Environmental or regulatory liabilities: If the target operates in an industry that carries environmental or regulatory risks, the buyer may seek specific indemnities to cover potential liabilities arising from environmental contamination, regulatory violations or non-compliance with licences.
• Employee-related liabilities: Employee-related indemnities may be requested if the buyer anticipates potential employment claims, such as unpaid wages, employee disputes or potential legal actions related to terminations.
• Product liability: If the target manufactures or sells products, the buyer may seek indemnification for product liability claims that may arise from defects or injuries caused by the products.
• IP infringement: The buyer may request indemnification for any IP infringement claims related to the target's products or services.
• Contractual obligations: Indemnities may be sought to cover breaches or non-performance of specific contracts critical to the target's operations – for example, indemnification in case a key contract is breached or terminated.
• Third-party claims: Buyers may seek indemnities to protect against potential third-party claims or legal actions that may arise after the transaction. This can include lawsuits, disputes or claims from customers, suppliers or other parties with which the target has contractual relationships.

6.3 What remedies are available in case of breach and what is the statutory timeframe for bringing a claim? How do these timeframes differ from the market standard position in your jurisdiction?

If there is a breach, the buyer will have a claim against the seller for damages to cover the loss caused by the breach. Generally, this is quantified as the dilution of the value of the shares or assets that were acquired as a result of the warranty.

The contractual time limits for bringing a claim are open to negotiation between the parties. The time limit for non-tax warranties may be commonly set for a period of up to three years. The time limits for tax warranties may be longer – up to six or seven years. Other areas, such as environmental and intellectual property, may also be subject to longer time limits.

In an asset sale, the time limit for bringing claims under general warranties may be shorter, because only identified liabilities and identified assets are being transferred. Therefore, a buyer should generally be able to identify in a shorter period of time whether any of the warranties have been breached.

The limitation periods for actionable claims are regulated in Cyprus by the Limitation of Actionable Rights Law of 2012 (66 (I)/2012), as amended, which sets out the rules on the periods of time within which a party can bring a claim, depending on the different types of cause of action. Generally, for contractual claims, the limitation period is six years from the date of completion of the basis of the claim.

6.4 What limitations to liability under the transaction documents (including for representations, warranties and specific indemnities) typically apply?

Limitations on warranties can include:

• a maximum limit on the seller's liability (eg, up to the amount of the sale price);
• the time periods within which a claim can be made;
• requirements on how to handle a dispute;
• a general obligation to mitigate any loss suffered; and
• matters disclosed in a disclosure letter.

Other restrictions can include:

• the seller qualifying warranties within the knowledge of certain individuals;
• the prevention of double recovery;
• a requirement for the buyer to first exhaust its rights against insurers and other third parties; and
• an exclusion of the seller's liability for contingent claims unless or until they become actual.

Certain core or fundamental warranties (eg, relating to the seller's title to the shares or assets being sold) are typically not subject to the same limitations that apply to business warranties.

6.5 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Although not the customary or most widely used practice in Cyprus, warranty and indemnity (W&I) insurance is in some cases negotiated or sought. The availability and terms of W&I insurance may vary based on factors such as:

• the transaction size;
• the industry sector;
• jurisdiction; and
• the specific risk profile of the deal.

Especially where the seller is unwilling or unable to provide the indemnities sought by the buyer – for example, due to concerns about financial exposure, or where the buyer has concerns about the seller's financial stability or ability to fulfil its indemnity obligations – W&I insurance is more commonly sought.

Strategic buyers often discuss W&I insurance to manage risks associated with their investment. Also, in cross-border transactions, where the buyer may have limited knowledge of the legal and regulatory environment of the target's jurisdiction, the buyer may seek W&I insurance for additional comfort and protection.

6.6 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

Usual approaches can include the following:

• Financial due diligence: Financial due diligence should be conducted to assess the seller's financial health, including reviewing:
• • financial statements;
  • cash-flow projections;
  • tax records; and
  • any outstanding debts or liabilities.
• Background checks and references: The buyer can:
• • conduct background checks on the seller's management team;
  • review the seller's track record in meeting contractual obligations; and
  • seek references from the seller's past business partners.
• Disclosure letters: The seller prepares disclosure letters that outline any known liabilities, potential claims or other risks associated with the target for the buyer to:
• • identify and assess the financial exposure; and
  • determine whether the seller has capacity to cover potential claims.
• Escrow accounts: The buyer may require the seller to deposit a portion of the purchase price into an escrow account as a reserve to cover any potential claims by the buyer after the transaction closes.
• Holdback provision: It is a provision in the sale documentation that involves withholding a portion of the purchase price for a specified period after closing. This amount is usually held in a separate account to ensure that the seller has sufficient funds to address potential liabilities.
• Representations and warranties insurance: See question 6.5.
• Guarantees: The buyer may seek a guarantee from the owner, parent company or other entities within the seller's group. The guarantee gives the buyer the right to pursue claims against the guarantors if the seller fails to fulfil its obligations.

6.7 Do sellers in your jurisdiction often include restrictive covenants in the transaction documents? What timeframes are generally thought to be enforceable?

Restrictive covenants are often included in the transaction documents to protect the buyer's interests and prevent the seller from engaging in certain activities that may be detrimental to the acquired business. The inclusion of restrictive covenants is subject to negotiation between the buyer and seller and their specific terms and enforceability may vary. Common types of restrictions are as follows:

• Goodwill: Covenants prohibiting the seller from competing with the business, soliciting clients or employees, or disclosing trade secrets or confidential information, can be used to protect the goodwill and customer relationships of the acquired business.
• Non-compete clauses: Non-compete clauses may be included to prevent the seller from establishing a similar business or engaging in a competing business within a specified geographic area and for a defined period. The scope and duration of non-competition clauses can vary and their enforceability depends on reasonableness.
• Non-solicitation clauses: Non-solicitation clauses restrict the seller from soliciting customers, suppliers, employees or other business relationships associated with the acquired business.
• Non-disparagement: Non-disparagement clauses prevent the seller from making negative or derogatory statements about the acquired business, the buyer or other parties involved in the transaction.
• Confidentiality: Restrictive covenants often include confidentiality provisions that prevent the seller from disclosing confidential information or trade secrets related to the acquired business. This safeguards sensitive information and proprietary knowledge.

The enforceability of restrictive covenants, including the timeframes for which they can apply, fundamentally depends on whether they are reasonable. Courts tend to scrutinise the reasonableness of the restrictions in terms of duration, geographical scope and the legitimate interests of the buyer. Timeframes that are typically considered enforceable can range from several months to a few years, depending on the nature of the business, industry norms and the circumstances of the transaction.

6.8 Where there is a gap between signing and closing, is it common to include conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Several conditions are typically included in agreements to protect the interests of both the buyer and seller where there is a time gap between signing the agreement and closing. These conditions help to ensure that there are no significant adverse developments during the interim period that would impact the transaction. Common conditions can include the following:

• No MAC: A ‘no MAC' clause requires that there be no material adverse change or event affecting the target or its business between signing and closing.
• Bring-down of warranties: A ‘bring-down of warranties' condition requires that the seller's representations and warranties made in the agreement remain true, accurate and complete as of the closing date.
• Compliance with legal and regulatory requirements: The agreement will usually include conditions that require the target to:
• • comply with all applicable legal and regulatory requirements; and
  • obtain any necessary approvals or consents required for the transaction.
• Consents and approvals: The agreement may specify that the transaction is subject to obtaining necessary consents or approvals from third parties, such as regulatory authorities, lenders or key customers or suppliers.

6.9 What other conditions precedent are typically included in the transaction documents?

Specific conditions may vary depending on the nature of the transaction and the parties involved. Common conditions may include the following:

• Approvals: All relevant regulatory approvals and third-party consents for the transaction should have been obtained.
• Financing: If the buyer is relying on external financing to fund the transaction, a condition precedent may be securing the necessary funding.
• Employee matters: Conditions related to employee matters may be included if there are specific requirements regarding:
• • employee consents;
  • retention agreements; or
  • the satisfactory resolution of employment issues.
• Litigation and legal compliance: The transaction may be subject to the absence of pending litigation or legal actions that could significantly impact on the target's operations or value.
• Performance of the business: The buyer may require a condition that the target continues to operate in the ordinary course of business between signing and closing.

7 Financing

7.1 What types of consideration are typically offered in private M&A transactions in your jurisdiction?

The most common forms of consideration are cash payments or payments in kind by the transfer of other assets as discharge of the purchase price. Frequently, the purchase price is paid in cash on completion on the transfer of title to the shares. Structuring the transaction in two stages by first signing and later closing together with payment is also common. Provisions for other forms of consideration or for a part of the price to be paid post-closing together with price adjustment mechanisms are also seen in several transactions (see question 7.2).

7.2 What are the key differences and potential advantages and disadvantages of the various types of consideration?

The specific types of consideration will depend on:

• the negotiating positions of the parties;
• the nature of the transaction; and
• the preferences and circumstances of the buyer and seller.

The main types of consideration are as follows:

• Cash payment: Cash is the most commonly used form of consideration in M&A transactions. It involves a direct payment of cash from the buyer to the seller in exchange for the ownership interests or assets being sold.
• Equity: In certain transactions, the buyer may offer shares or equity interests in their own company as consideration. This type of consideration allows the seller to become a shareholder in the acquiring company and benefit from any future growth.
• Earnout: An earnout is a contingent payment structure where a portion of the consideration is determined based on the future performance or achievement of specified financial targets by the acquired business. Earnouts are often used when there is uncertainty about the future performance or value of the target, as they allow the buyer to align the consideration with the post-acquisition performance of the business.
• Seller financing: In some cases, the buyer may propose seller financing as part of the consideration. This involves the seller providing a loan or extending credit to the buyer for a portion of the purchase price.
• Assumption of debt or liabilities: The buyer may assume certain debts or liabilities of the target as part of the consideration.
• Combination of consideration types: It is common for M&A transactions to involve a combination of different types of consideration.

7.3 What factors commonly influence the choice of consideration?

The choice of consideration types is influenced by various factors, including:

• the financial position of the buyer and seller;
• tax implications;
• risk allocation; and
• the strategic objectives of the transaction.

7.4 How is the price mechanism typically agreed between the seller and the buyer? Is a locked-box structure or completion accounts structure more common?

The price is negotiated and agreed by the parties based on the target's financial statements and accounts and in certain cases based on valuations prepared by experts.

It is common to agree on price adjustment mechanisms which may provide that a part of the consideration will be calculated based on:

• the company's results over a period before and/or after completion; and
• indicators relevant to the company's business or assets being purchased.

7.5 Is the price typically paid in full on closing or are deferred payment arrangements common?

See questions 7.1 and 7.2.

7.6 Where a deferred payment/earn-out payment is used, what typical protections are sought by sellers (eg, post-completion veto rights)?

Such protections seek to mitigate the risks associated with contingent payments and provide sellers with control or influence over certain aspects of the business during the earnout period. Typical protections sought by sellers include the following:

• Post-completion veto rights: Sellers may negotiate for post-completion veto rights or approval rights over significant decisions or actions that could impact the earnout calculation or the value of the business (eg, decisions related to capital expenditures, major contracts, acquisitions, divestitures, or changes in business strategy).
• Financial reporting and auditing: Sellers often request access to regular financial reports and audited financial statements of the business during the earnout period. This enables them to monitor the financial performance and ensure transparency in the calculation of the earnout.
• Non-compete and non-solicitation obligations: Sellers may negotiate for non-compete and non-solicitation provisions that restrict the buyer's ability to compete with the business or solicit customers, employees or suppliers during the earnout period.
• Operational and management control: Sellers may retain certain operational and management control during the earnout period to ensure that the business continues to operate in a manner that maximises the earnout potential (eg, retaining key management personnel, having a seat on the board of directors or maintaining decision-making authority over specific matters).
• Escrow accounts: The seller may require the buyer to deposit the deferred consideration or a part of it into an escrow account.
• Security or collateral: In certain cases, sellers may require the buyer to provide security or collateral to secure the deferred payment or earnout obligation.

7.7 Do any rules on financial assistance apply in your jurisdiction, and what are their implications for private M&A transactions?

Please see question 2.3. In accordance with Section 53 of the Companies Law (Cap 113), a private company can provide financial assistance for the purchase or subscription of its own shares, provided that:

• the company's articles of association permit it;
• the company is not a public company or a subsidiary of a public company; and
• the provision of financial assistance is approved at a general meeting by a majority of more than 90% of the votes of all issued shares.

7.8 What other key concerns and considerations should participants in private M&A transactions bear in mind from a financing perspective?

Key considerations may include the following:

• Funding availability and structure: Buyers should assess the availability of funds to finance the transaction. Buyers should also evaluate the optimal financing structure, considering factors such as:
• • the purchase price;
  • capital structure;
  • interest rates;
  • repayment terms; and
  • any potential collateral requirements.
• Due diligence on financial position: Both buyers and sellers should conduct financial due diligence to evaluate the financial position of the target.
• Financial projections: Buyers seeking financing may need to provide financial projections that demonstrate the anticipated returns and synergies from the acquisition.
• Valuation and loan-to-value ratio: Lenders often consider the valuation of the target and the loan-to-value ratio when determining the financing terms.
• Loan documentation: Buyers should carefully review the relevant loan documentation, including loan agreements, security agreements and covenants. Compliance with these covenants is crucial to maintaining a good relationship with lenders.
• Exit strategy and refinancing: Buyers should consider their exit strategy and potential refinancing options after completing the transaction.
• Tax implications: Financing structures may have tax implications that should be carefully assessed in advance.

8 Deal process

8.1 How does the deal process typically unfold? What are the key milestones?

While the specific timeline and sequence of events can vary based on the transaction's complexity and the parties involved, a general outline of the typical stages and milestones in an M&A deal could be as follows:

• Pre-transaction planning and strategy: The buyer identifies potential targets and develops an M&A strategy aligned with its business objectives.
• Preliminary discussions and indicative offers: The buyer may engage in initial discussions with the target's management or owners to assess their interest in a potential transaction. Confidentiality agreements, indicative offers or letters of intent may be signed.
• Due diligence: The buyer conducts due diligence to assess the target's financial, legal, operational and commercial aspects. Due diligence typically involves:
• • reviewing documents;
  • conducting site visits;
  • analysing financial statements; and
  • assessing potential risks and liabilities.
• Negotiation of definitive agreements: Based on the findings of the due diligence, the buyer and seller negotiate the definitive agreements – primarily the purchase agreement. This agreement outlines the terms and conditions of the transaction, including:
• • the purchase price;
  • the payment terms;
  • representations and warranties;
  • covenants; and
  • any specific conditions precedent.
• Regulatory approvals and clearances: Depending on the industry, the transaction may require regulatory approvals or clearances. This can involve obtaining:
• • competition clearance;
  • sector-specific licences; or
  • consents from relevant authorities.
• Obtaining these approvals may require additional time and documentation.
• Financing arrangements: If external financing is required, the buyer secures the necessary funding. This may involve:
• • engaging with lenders;
  • negotiating loan agreements;
  • conducting financial due diligence; and
  • satisfying any conditions precedent for the financing.
• Shareholder and board approvals: Shareholders and the board of directors of both the buyer and the seller review and approve the transaction.
• Closing preparations: The parties work to:
• • fulfil any outstanding conditions precedent;
  • prepare closing documents; and
  • address any remaining issues or concerns.
• Closing: Formal completion of the transaction. During the closing, the purchase price is paid and the transfer of ownership or assets occurs.
• Post-closing: Post-closing activities may include:
• • integrating the acquired business;
  • addressing transitional matters;
  • implementing any necessary changes; and
  • ensuring a smooth transition for employees, customers and other stakeholders.

8.2 What documents are typically signed on closing? How does this typically take place?

Closing documents are executed and exchanged at the closing of the transaction to effectuate the transfer of ownership of the shares or of the assets. They may include:

• share transfer forms;
• share certificates;
• board resolutions;
• closing certificates; and
• other deliverables/documents that must be exchanged in order to finalise the transaction.

8.3 In case of a share deal, what is the process for transferring title to shares to the buyer?

In a share sale, on closing, the seller delivers documents that effect transfer of title to the shares and satisfy any conditions for closing. In relation to transferring title to the shares, these documents include:

• the instrument of transfer;
• resolutions of the target's board of directors to approve the transfer and related actions;
• the original share certificate(s) for the transferred shares (these must be deposited by the seller with the target for cancellation);
• an updated register of members of the target recording the buyer as owner of the shares; and
• new share certificate in the buyer's name.

In relation to other closing conditions, closing documents can include:

• resignations of the target's directors and the company secretary;
• financial statements and accounting records;
• tax filings and/or tax clearances;
• bank authorisations or termination of authorisations;
• valid powers of attorney or termination of them; and
• deliverables in connection with the company's assets (if applicable).

8.4 Post-closing, can the seller and/or its advisers be held liable for misleading statements, misrepresentation, omissions or similar?

The ‘parol evidence rule' generally applies under Cyprus law. In brief, the rule prevents parties that have reduced their agreement to a final written document from later introducing other evidence of a different intent about the terms of the contract (eg, the content of oral discussions in the negotiation process). Agreements typically include ‘entire agreement' clauses, which exclude any statements or representations made before the contract.

8.5 What are the typical post-closing steps that need to be taken into consideration?

Notification of the transfer of shares must be made to the registrar of companies to record the transfer of the shares; but this is not a condition for title to the shares to pass from the transferor to the transferee.

In addition, after closing of an M&A transaction, post-closing steps should be taken to ensure a smooth transition and integration of the acquired business. These steps may vary depending on the specific circumstances of the transaction. Typical post-closing steps can include the following:

• Transition of contracts and relationships: Identifying and addressing contracts and relationships affected by the transaction is important. This includes:
• • notifying counterparties, customers, suppliers and other business partners about the change in ownership; and
  • ensuring a smooth transition or assignment of contracts and relationships to the buyer.
• Employees: Managing the integration of employees is critical. Developing a communication plan to inform employees about the transaction, their roles and any changes is important to minimise disruption.
• Regulatory compliance: Ensuring compliance with applicable laws and regulations is essential post-closing. This may involve:
• • obtaining necessary licences or permits;
  • updating registrations;
  • notifying regulatory authorities; and
  • addressing any ongoing regulatory obligations specific to the acquired business or industry.
• Financial and accounting considerations: This involves the integration of the financial and accounting aspects of the acquired business into the buyer's systems and processes.
• Post-closing adjustments: In some cases, post-closing adjustments may be necessary to address any discrepancies or changes in financial or operational matters that were not finalised at closing. These adjustments may relate to:
• • the purchase price;
  • working capital; or
  • other specific provisions agreed upon in the transaction documentation.

9 Competition

9.1 What competition rules apply to private M&A transactions in your jurisdiction?

The main pieces of legislation governing competition matters in Cyprus are:

• the Control of Concentrations of Enterprises Law (83(I)/2014), which sets out the rules for the control of concentrations to ensure that they do not result in the distortion of effective competition in a market; and
• the Competition Protection Law (13(I)/2008), which regulates restrictions in agreements and abuse of dominant position.

Under the Control of Concentrations of Enterprises Law, a concentration of major importance must be notified and pre-approved. A concentration is deemed to be of major importance if either:

• the total turnover realised by at least two of the undertakings concerned exceeds, for each of them, €3.5 million and:
• • at least two of the participating undertakings have turnover in Cyprus; and
  • at least €3.5 million of the total turnover of all participating undertakings is realised in Cyprus; or
• it is declared by order of the minister of energy, commerce, industry and tourism as one of major importance.

A concentration is deemed to arise when a change of control on a lasting basis results from either:

• the merger of two or more previously independent undertakings or parts of undertakings; or
• the acquisition by one or more persons already controlling at least one undertaking, or by one or more undertakings, through a purchase of securities or assets, contract or any other means, of direct or indirect control of the whole or parts of one or more other undertakings.

The creation of a joint venture that performs on a lasting basis all functions of an autonomous economic entity is also a concentration.

A concentration of major importance must be notified to and pre-approved by the Commission for the Protection of Competition (Control of Concentrations of Enterprises Law).

The Commission for the Protection of Competition has exclusive competence to oversee the harmonious operation of the market under the rules of fair competition, in order to boost economic growth and social welfare. Details of the merger notification and approval process are available on its website.

The substantive test for compatibility of a concentration with competition law is whether it substantially affects or obstructs competition in Cyprus or any part thereof, particularly as a result of the creation or strengthening of a dominant position.

9.2 What key concerns and considerations should participants in private M&A transactions bear in mind from a competition perspective?

They should assess at an early stage whether the transaction may give rise to a concentration which is subject to the law as stated in question 9.1. If so, the parties should take this into consideration when they negotiate the terms of the transaction, including as to timing and the conditions for completion, and reflect this in their agreements. The parties should make or seek the relevant notifications and approvals as may be required in each case.

10 Employment

10.1 What employee consultation rules apply to private M&A transactions in your jurisdiction?

When a company is sold, or when a company sells and/or transfers its business or a business department, its employees transfer to the buyer subject to certain exceptions in accordance with the Preservation and Safeguard of Employees Rights during the Transfer of Businesses, Facilities or Business Departments Law (104(I)/2000).

On the transfer date, all rights and obligations of the transferor's employees are transferred to the transferee, including rights relating to old age and disability and occupation retirement benefits.

The transferee must preserve the employment terms for at least one year from the transfer.

The transferor and the transferee must promptly inform the employees who are affected by the transfer, or their representatives, of:

• the proposed date of transfer;
• the reasons for the transfer;
• the legal, financial and social consequences of the transfer for the employees; and
• the proposed measures to be taken in relation to the employees.

A transferee that intends to vary the employees' terms of employment must engage in consultations with the employees or their representatives to reach a settlement. Consultations must take place before the employment terms are affected by the transfer.

Generally, a share sale does not involve a change of employer (the target being sold continues to be the employer). As a result, the employees' contracts continue and there is no statutory obligation to inform or consult employees. However, a buyer may wish employees to be notified in advance or key personnel to be made aware of the transaction.

10.2 What transfer rules apply to private M&A transactions in your jurisdiction?

See question 10.1.

10.3 What other protections do employees enjoy in the case of a private M&A transaction in your jurisdiction?

The transferee is generally liable for all claims made by transferring employees before or after the transfer. However, the transferor and transferee can agree to joint liability for employment claims relating to the transfer.

Dismissal of employees due to the sale or transfer of the business is unfair and entitles employees to claim compensation for unfair dismissal.

In certain circumstances, it may be justifiable for the buyer to make employees redundant because of economic, technical and organisational reasons, in accordance with the Termination of Employment Law. In this case, redundant employees have the right to compensation from the Redundancy Fund.

As a share sale does not involve a change of employer (the target being sold continues to be the employer), the employees' contracts continue. Any associated or contemporaneous dismissals are subject to the normal unfair dismissal rules.

10.4 What is the impact of a private M&A transaction on any pension scheme of the seller?

Under Cyprus law, an employer is not required to provide its employees with access to a private pension scheme. The only mandatory retirement payment is the social insurance contribution.

However, supplementary pension schemes can be provided as benefits through private pension schemes or insurance pension schemes. Though this is not the norm, it is also not uncommon.

When the business of a company is sold, the company's employees transfer to the buyer. Employees must be granted all rights to which they were previously entitled regarding old age and disability and any rights to supplementary occupational retirement benefits. Pension entitlements must remain unaffected.

10.5 What considerations should be made to ensure there are no concerns over the potential misclassification of employee status for any employee, worker, director, contractor or consultant of the target?

The following are some key considerations:

• Review employee classification: Conduct a review of the target's employment classification practices as to whether individuals are properly classified as employees, workers, contractors, or consultants based on the applicable laws and regulations.
• Legal and tax advice: Consult with legal counsel and tax advisers to assess the specific risks, implications and mitigation strategies tailored to the transaction.
• Evaluate employment agreements and contracts: Review employment agreements, independent contractor agreements, consultancy agreements and other relevant agreements.
• Conduct interviews: Engage in interviews or discussions with key individuals to understand their working arrangements and responsibilities.
• Historical practices and disputes: Review any past disputes, claims or audits related to employment status classification in the target.
• Representations and warranties: In the transaction documentation, include representations and warranties related to the proper classification of employees, workers, contractors and consultants.

10.6 What other key concerns and considerations should participants in private M&A transactions bear in mind from an employment perspective?

If potential misclassifications are identified, the buyer should evaluate the need for remediation measures. These may include:

• reclassifying individuals;
• adjusting contractual terms;
• implementing changes to working arrangements; or
• addressing any outstanding obligations resulting from misclassification.

It is advisable that the buyer develops a plan to ensure compliance and integration of employment status classification practices post-transaction. This may involve:

• aligning policies, procedures and practices with the buyer's existing approach;
• providing training to relevant personnel; and
• implementing consistent classification practices across the combined entity.

11 Data protection

11.1 What key data protection rules apply to private M&A transactions in your jurisdiction?

In Cyprus, private M&A transactions are subject to data protection rules, primarily governed by the EU General Data Protection Regulation (GDPR) which is directly applicable in Cyprus. The GDPR establishes a framework for the protection of personal data and imposes obligations on organisations that process personal data. Based on the GDPR, the key protection rules that apply to private M&A transactions in Cyprus are as follows:

• Lawful basis for processing: Personal data collected and processed during the M&A transaction must have a lawful basis as defined under the GDPR.
• Data minimisation and purpose limitation: Personal data should be limited to what is necessary for the purpose of the transaction.
• Confidentiality and security: Personal data exchanged during the M&A transaction should be treated confidentially and protected with appropriate security measures.
• Data subject rights: Individuals whose personal data is processed during the M&A transaction have certain rights under the GDPR. These include:
• • the right to be informed about the processing of their data;
  • the right to access their data;
  • the right to rectify inaccuracies;
  • the right to erasure;
  • the right to object to processing; and
  • the right to data portability.
• Data transfers: If personal data is transferred outside the European Economic Area during the M&A transaction, appropriate safeguards must be in place to ensure an adequate level of protection for the data.
• Data retention: Personal data collected and processed during the M&A transaction should be retained for no longer than necessary.
• Privacy notices and transparency: Data controllers should provide individuals with clear and transparent information about the processing of their personal data during the M&A transaction.
• Data protection impact assessment (DPIA): Conducting a DPIA may be necessary if the M&A transaction involves high-risk processing activities that are likely to result in a high risk to individuals' rights and freedoms.

11.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from a data protection perspective?

The following practices may be relevant to consider before commencement and throughout the M&A transaction:

• Data inventory: Understand:
• • the types of personal data being processed;
  • the purposes of processing; and
  • the parties involved in the transaction.
• Privacy impact assessments: Consider conducting a privacy impact assessment to assess the potential privacy risks and impacts associated with the M&A transaction.
• Contractual obligations: Review data protection obligations in the transaction agreements, such as the purchase agreement, confidentiality agreements and data transfer agreements.
• Third-party data processors: Identify any third-party service providers or data processors involved in the transaction and assess their compliance with data protection laws.
• Data breach management: Develop a data breach response plan to address any potential data breaches that may occur during the transaction.
• Employee awareness: Ensure that employees involved in the M&A transaction are aware of their data protection obligations and receive appropriate training on handling personal data.
• Cross-border data transfers: If the M&A transaction involves the transfer of personal data across borders, consider the applicable data transfer mechanisms and ensure compliance with relevant data protection laws.

12 Environment

12.1 Who bears liability for the clean-up of contaminated sites? How is liability apportioned as between the buyer and the seller in case of private M&A transactions?

Contamination of soil or groundwater is a criminal offence under the Law of Control of Water Pollution (106/2002, as amended). The offence captures a wide range of acts, including (generally and not exhaustively) the following:

• the disposal into waters of any object, substance or matter that pollutes or tends to pollute waters;
• the disposal on soil or subsoil of any object that pollutes or tends to pollute waters;
• the deposit of any object, substance or matter in a place where it is likely to fall or be transferred into waters;
• the disposal of any liquid waste, mud or other semi-liquid or dry waste on or in soil or sub-soil;
• the disposal or deposit from an installation into surface waters or coastal waters of liquid or dry waste, or any other liquid containing floating matter; and
• the disposal or deposit into sea mud of any substance or matter that comes from the treatment of waste.

The offence is punishable with up to three years' imprisonment, a €500,000 fine or both.

Anyone that contributes to the contamination is liable for the offence, regardless of whether other persons may have contributed. This can include the new owner of a company that owns an asset that causes pollution or the direct new owner of the asset.

The government and municipal authorities have powers to order an asset owner to clean up contamination at the site it owns, even if it is not the original polluter.

Criminal liability can be imposed on directors and officers of corporate entities who commit the offence.

Civil liability may arise under general tort law. Apportionment of liability is a duty of the court. The general principle is that attribution is made based on the extent of fault of each party involved.

The rights of subsequent landowners against previous owners that may have caused land contamination is a matter to be regulated in the relevant sale contract, including rights for compensation or rescission of the contract and the transfer of risk of liability to a buyer.

Where an asset is to be purchased to be utilised for a certain development, the approval of which by state or government authorities requires the submission of environmental impact studies, environmental due diligence surveys and searches are commonly conducted.

In other instances, it is not common to carry out environmental due diligence surveys and searches when buying a company or assets in Cyprus, unless there is a relevant specific reason or risk. Since it is usual for other experts to perform checks on the target asset (eg, architects, surveyors, civil engineers), any such increased need or risk for examining the environmental status can be identified.

12.2 What other key concerns and considerations should participants in private M&A transactions bear in mind from an environmental perspective?

Key concerns and considerations may include the following:

• Environmental due diligence: Identify and assess potential environmental risks and liabilities associated with the target. This involves evaluating:
• • environmental permits;
  • compliance with environmental laws and regulations;
  • contamination risks;
  • past and ongoing environmental incidents; and
  • any pending or historical claims or litigation.
• Environmental permits and compliance: Assess the target's compliance with environmental permits and regulations. Evaluate the status and validity of permits, licences and approvals required for the company's operations.
• Contamination and remediation: Examine the target's historical and current activities to assess the presence of environmental contamination.
• Environmental liabilities and disclosure: Identify and evaluate potential environmental liabilities that may arise from the target's operations.
• Regulatory changes and compliance risks: Evaluate the potential impact of future regulatory changes on the target's operations and compliance obligations.
• Environmental insurance and indemnification: Consider the availability and adequacy of environmental insurance coverage to mitigate potential environmental risks and liabilities.

13 Tax

13.1 What taxes are payable on private M&A transactions in your jurisdiction? Do any exemptions apply?

In any M&A transaction, specialised tax advice must be sought from tax experts, based on the specific facts and circumstances of each case.

The main transfer tax that applies to a sale of shares of a Cyprus company (which does not own real estate in Cyprus) is stamp duty. Stamp duty is payable on a share purchase agreement and any other document that relates to any property situated in Cyprus or to any matter or thing to be performed or done in Cyprus, irrespective of where it is executed.

Stamp duty is calculated based on the value of the transaction at the following rates:

• Up to €5,000: No stamp duty.
• Between €5,000 and €170,000: 0.15%.
• Between €170,000 and €10,046,250: 0.2%.
• The maximum amount of stamp duty payable is €20,000 per transaction.

Where more than one agreement relates or ancillary to the same transaction, after full payment of stamp duty for the main agreement, the rest may be stamped by payment of a nominal amount of €2 for each.

Payment of stamp duty is a condition for the document's admissibility as evidence in court. Case law suggests that, insofar as a failure to pay stamp duty can be rectified at a subsequent stage, it does not affect the validity of the relevant agreement, but only its admissibility as evidence.

13.2 What other strategies are available to participants in a private M&A transaction to minimise their tax exposure?

In each case, based on the specific circumstances of each case, tax advice should be obtained to assess possible tax exposure and risks.

In general, the following provisions of the Cyprus tax regime should be noted:

• The corporate tax rate is 12.5%.
• Profits generated from the sale of shares are exempt from corporate income tax.
• Dividend income is generally exempt from tax.
• No withholding taxes are due on payment of dividends, interest and royalties to non-residents.
• There is a notional interest deduction (annual tax expense calculated as a percentage of equity).
• Certain exemptions from corporate income tax are available on the sale of assets, mainly in relation to IP assets.
• It is possible to carry forward losses for a period of five years.
• Group relief rules are available.
• There is an extensive and continuously growing network of double tax treaties (with over 60 countries).

13.3 Is tax consolidation of corporate groups permitted in your jurisdiction? Can group companies transfer losses between each other for tax purposes?

The current year tax losses of one company can be offset against the profit of another, subject to conditions, provided that the companies are Cyprus tax resident group companies. A ‘group' is defined as either:

• one Cyprus tax resident company holding directly or indirectly at least 75% of the voting shares of another Cyprus tax resident company; or
• Cyprus tax resident companies being at least 75% (voting shares) held, directly or indirectly, by a third company.

13.4 What other key concerns and considerations should participants in private M&A transactions bear in mind from a tax perspective?

Tax advice must be sought from tax experts based on the specific facts and circumstances of each case.

Key concerns include the following:

• Transaction structure: Review the tax implications of the chosen tax structure.
• Tax due diligence: Conduct thorough tax due diligence to identify and assess potential tax risks, liabilities and exposures associated with the target.
• Tax compliance and reporting: Evaluate the target's compliance with tax laws and regulations.
• Transfer pricing: Evaluate transfer pricing arrangements between related entities within the target's group.
• Tax reserves and contingencies: Assess the adequacy of tax reserves and provisions set aside by the target for potential tax liabilities.
• Transaction costs and deductibility: Evaluate the deductibility of transaction costs, such as legal, advisory or financing fees, incurred in connection with the transaction.
• Indirect taxes: Consider indirect taxes such as value-added tax (VAT). Assess the potential impact on the transaction of taxes such as VAT on the purchase price or potential transfer tax obligations.

14 Trends and predictions

14.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

Cyprus' strategic location as an EU member state, with a robust legal system and an efficient and comprehensive tax system, positions it as a key jurisdiction for operating international businesses and organising joint ventures and acquisitions.

To further enhance Cyprus' attractiveness as a jurisdiction for international business, harmonisation with EU law is continually carried out and new legislation enacted to provide incentives for business. Current initiatives include the following:

• the ongoing updating of the Cyprus foreign interest company scheme, which permits – under certain conditions and through an easy process – Cyprus registered companies owned by foreign shareholders to employ third country (non-EU) nationals, who are issued employment and residency permits;
• tax incentives for foreign (non-Cypriot) employees of Cyprus companies;
• a digital nomad visa scheme, for persons employed by Cyprus companies;
• a non-dom Cyprus tax residency scheme where a person, by living in Cyprus for 60 days (and not over 183 in any other country), becomes a Cyprus tax resident and benefits from tax exemptions on his or her worldwide income;
• a government announcement to introduce tax and other incentives for IT, technology and innovative companies; and
• harmonisation with EU anti-money-laundering legislation regarding a register of ultimate beneficial ownership.

14.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

See question 14.1.

15 Tips and traps

15.1 What are your top tips for the smooth closing of private M&A transactions and what potential sticking points would you highlight?

Our top tips are as follows:

• Clear communication: Maintain open and transparent communication between the buyer, the seller and their respective advisers.
• Well-prepared closing checklist: Develop a comprehensive closing checklist that includes all necessary actions, documents and approvals required for closing.
• Efficient due diligence: Conduct thorough due diligence well in advance of the closing date.
• Experienced professionals: Work with experienced legal, financial and tax professionals who have expertise in M&A transactions.

Potential sticking points include the following:

• Purchase price adjustments: Disagreements may arise regarding:
• • purchase price adjustments;
  • working capital calculations; or
  • earnout provisions.
• Clearly define the mechanisms for determining and resolving such adjustments in the purchase agreement to mitigate potential disputes.
• Representations and warranties: Negotiations of representations and warranties can be contentious. Address any significant discrepancies or concerns during the due diligence process and strive for a balanced approach that protects the interests of both parties.
• Consents and approvals: Obtain all necessary consents, approvals and waivers required from the participants – as well as from third parties, such as regulatory authorities, suppliers, customers or landlords – in a timely manner.
• Post-closing obligations: Clearly outline post-closing obligations – such as transition services, employee retention or non-compete agreements – in the transaction documentation.
• Regulatory and legal challenges: Be prepared for potential regulatory challenges or legal obstacles that may arise during the closing process.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.